120K year Lifestyle

[Diogenes]

As others noted, taxes are the key discriminator.... but I don't mean $120K before-tax or after-tax. I mean, what if your annual income tax bill is itself $120K? Or more? Dividends in a taxable portfolio are expensive, as are RMDs from a tax-deferred one (even more so). How do we juxtapose actual living-expenses, with taxes? As a semi-retiree currently in "Barista FIRE", easily two thirds of my total expenses - including of course housing, food, insurance, everything - are federal and state income taxes.

 

[djsander]

Our spend is less than half that. We could have that budget on what we have, but not sure what we would actually spend it on. We live a pretty comfortable life and never go without.

 

[HFWR]

If I had a SO, that $120k would be within sight, but I’d no longer be in the 12% bracket.

 

[TheWizard]

As others noted, taxes are the key discriminator.... but I don't mean $120K before-tax or after-tax. I mean, what if your annual income tax bill is itself $120K? Or more? Dividends in a taxable portfolio are expensive, as are RMDs from a tax-deferred one (even more so). How do we juxtapose actual living-expenses, with taxes? As a semi-retiree currently in "Barista FIRE", easily two thirds of my total expenses - including of course housing, food, insurance, everything - are federal and state income taxes.

Two thirds, you say?
I find that hard to believe, or possibly just disingenuous.
Example: a single person with $200,000 AGI pays around $34,000 in federal income tax, leaving $166,000 for spending.
But let's say that person somehow only "spends" $17,000 for the year , putting the remaining $149,000 into savings and investments.

Then bingo, total expenses for the year were $51,000, two-thirds of which were income tax...

 

[Flieger]

If I had a SO, that $120k would be within sight, but I’d no longer be in the 12% bracket.

If you're talking just Fed, after Std Fed you'd stay within 12% bracket (assuming MFJ).

Flieger

 

[Diogenes]

Two thirds, you say?
I find that hard to believe, or possibly just disingenuous.
Example: a single person with $200,000 AGI pays around $34,000 in federal income tax, leaving $166,000 for spending.
But let's say that person somehow only "spends" $17,000 for the year , putting the remaining $149,000 into savings and investments.

Then bingo, total expenses for the year were $51,000, two-thirds of which were income tax...

Those numbers aren't unreasonable. Keep in mind, that most of the income is dividends or capital gains distributions from taxable accounts... we are, after all, mostly retired around here. So if Smith has $200K AGI, maybe $160K of that is from his Fidelity account, and the rest as a part-time consultant on 1099. The amount left to "spend" is paltry, because the whole point is to keep the Fidelity account whole... namely, use W2 or 1099 earnings to absolutely positively never make a withdrawal. As the account grows, so does its annual tax expense, which has to be covered from additional work - hence only barista FIRE and not outright FIRE.

 

[Gallaher]

Challenging to answer the $120k question without knowing lifestyle.
We are likely living on about $120k a year, maybe less, we don’t track our spending, just spend what we want. BUT, everything we have is paid for…everything. Also, we pay cash for everything (or credit card yada, yada pay off every month).
Life would be different with debt….figured that out a long time ago.

 

[HappyCamper3743]

Unless you are in Nevada. Property taxes do not adjust when homes are resold.

Florida ABSOLUTELY adjusts property taxes with every sale of a home. Also property taxes are adjusted when any renovation represents over 50% increase in SF or value. Everyone buying property in Florida should know that the property taxes shown on the Property Appraiser website for the current owners is always going to be FAR LESS than a new owner. Just how much less depends on the value of their home and how long they've owned their home being able to take advantage of the 3% max annual increase under Homestead Exemption.

 

[TheWizard]

Those numbers aren't unreasonable. Keep in mind, that most of the income is dividends or capital gains distributions from taxable accounts... we are, after all, mostly retired around here. So if Smith has $200K AGI, maybe $160K of that is from his Fidelity account, and the rest as a part-time consultant on 1099. The amount left to "spend" is paltry, because the whole point is to keep the Fidelity account whole... namely, use W2 or 1099 earnings to absolutely positively never make a withdrawal. As the account grows, so does its annual tax expense, which has to be covered from additional work - hence only barista FIRE and not outright FIRE.

There's something wrong with your thinking/computing about this but I don't have all the numbers needed to figure it out.
But a lot of people spend down their taxable account to a degree in early retirement before accessing tax-deferred at 59-1/2 and then SS between 62 and 70.

And both LTCG and QDivs are tax-preferenced, so a lower income tax amount compared to having all Ordinary Income...

 

[TickTock]

The amount left to "spend" is paltry, because the whole point is to keep the Fidelity account whole... namely, use W2 or 1099 earnings to absolutely positively never make a withdrawal.

^^^^^
This is what creates the whole situation. Smith has plenty available to spend but chooses to make never withdrawing from the portfolio the overriding goal. Change the priority and the situation vanishes.

In any case, I don't think this relevant to the OPs question.

 

[Winemaker]

We live pretty comfortable at $120k after tax here in SWPA. But we're trying to whittle down the t IRAs via conversions so our "income" is higher than that. The good life is expensive, there's another one, but it isn't any good.

 

[TheWizard]

Those numbers aren't unreasonable. Keep in mind, that most of the income is dividends or capital gains distributions from taxable accounts...

I should also note that CG Distributions are almost always caused by holding a managed stock fund in your taxable account.
Hold only index funds in your taxable account and you will likely have zero CGDs...

 

[Dtail]

Florida ABSOLUTELY adjusts property taxes with every sale of a home. Also property taxes are adjusted when any renovation represents over 50% increase in SF or value. Everyone buying property in Florida should know that the property taxes shown on the Property Appraiser website for the current owners is always going to be FAR LESS than a new owner. Just how much less depends on the value of their home and how long they've owned their home being able to take advantage of the 3% max annual increase under Homestead Exemption.

Good and accurate first post.

 

[stepford]

Things will change when the SS/RMD tax torpedo hits in a few years. Our tax bill could easily equal our total annual non-tax expenses once that happens.

 

[TheWizard]

Things will change when the SS/RMD tax torpedo hits in a few years. Our tax bill could easily equal our total annual non-tax expenses once that happens.

Start booking more cruises and other travel.
Quick!!!

 

[Luvdogs]

Ha! You think that constitutes high taxes? Come to NJ. Our house is worth maybe 400K. Our taxes last year were over $8,200.

Ha! Actually I grew up in South Jersey and just checked the value of the house i lived in until 1975. Zillow says it's worth 400K and the taxes last year were 9K, so I got you beat . Glad I'm outta there!

 

[cxr133]

Thank you all for the replies i took alot in.

Alot of people mentioned lifestyle and that was my question what would the lifestlye look like in a low COL state with no income tax and a major urban setting like central florida.

 

[Dtail]

Ha! Actually I grew up in South Jersey and just checked the value of the house i lived in until 1975. Zillow says it's worth 400K and the taxes last year were 9K, so I got you beat . Glad I'm outta there!

Lived in Central Jersey. Last house I lived in is valued at 843k with 15.6k in taxes.

 

[flyingaway]

$120K is a lot of money and most people do not need that much. However, it depends entirely on your life style. If someone wants to eat out every day, travel in business class, and have golf club membership, etc., then $120K may not be enough.
Life can be simple and comfortable. Last month, we traveled to Egypt, Jordan, and Italy, (with side trips to Switzerland and Slovenia) for 18 days, spent around $6,800. One could easily do that with more than $30,000.

 

[1242Vintage]

Wife and I retired a couple years ago in our late 50’s in the Golden State and live on a $130k/yr per year pension. We don’t have any long-term debt (home or auto). And we have lived in our home for a few decades so property tax isn’t killing us.

As for lifestyle, we enjoy three or four trips a year (Cancun, Cabo, Pacific Northwest & eastern Mediterranean this year). Both of us have hobbies that cost a few thousand a year.

Life is good!!!

 

[Montecfo]

There's something wrong with your thinking/computing about this but I don't have all the numbers needed to figure it out.
But a lot of people spend down their taxable account to a degree in early retirement before accessing tax-deferred at 59-1/2 and then SS between 62 and 70.

And both LTCG and QDivs are tax-preferenced, so a lower income tax amount compared to having all Ordinary Income...

Sure but having large RMDs is not the same as having high non-tax expenses. You pay the taxes whether the income is spent or not.

If your living costs are low you could still have high taxes with RMDs.

 

[TheWizard]

Sure but having large RMDs is not the same as having high non-tax expenses. You pay the taxes whether the income is spent or not.

If your living costs are low you could still have high taxes with RMDs.

So what?
Donate more from your tIRA with QCDs.
I'm getting a little bit tired of Rich People WHINING about their tax rates.
I'm at the boundary of the 24% and 32% federal tax brackets and not complaining.
If you're going to be rich, you have to cope with the details.
Deal with it...

 

[marymom]

Our annual budget is @120,000. Our pension income is around 107,000 leaving us with dividend/rental income to top it off. We are living a great life! We downsized to a new construction cottage in a 55+ neighborhood in Florida. We transferred our Save Our Florida Homes property tax balance to offset the appraised value of our home. We paid 2200 in property taxes and 1200 in home insurance last year! We own our home outright. We are spending what we want and still have money for splurges.

 

[Diogenes]

So what?
Donate more from your tIRA with QCDs.
I'm getting a little bit tired of Rich People WHINING about their tax rates.
I'm at the boundary of the 24% and 32% federal tax brackets and not complaining.
If you're going to be rich, you have to cope with the details.
Deal with it...

These "rich people" weren't born rich. They spent a lifetime being frugal and investing as much as possible. Compounding led to their wealth. Now they're being penalized (via taxes), whereas their counterparts, who spent every penny, aren't thus being penalized. Call me a whiner - or more bluntly, just plainly stupid - but had I realized 20 or 30 years ago, how expensive it is to be "rich", I'd not ever have gone to the trouble.

 

[Flieger]

Thank you all for the replies i took alot in.

Alot of people mentioned lifestyle and that was my question what would the lifestlye look like in a low COL state with no income tax and a major urban setting like central florida.

In a LCOL area and state with no Income tax, $120k/year will be high cotton! Enjoy!

Flieger